Energy Retrofit or 401(k)?

The strategy of living with inefficient homes and cars, and then looking to retirement accounts and paychecks to pay for that inefficiency appears more and more questionable. And I have some numbers to prove it.
Sure, I've heard of placentas...
An astute analysis was recently posted to GreenBuildingAdvisor.com by Ted Clifton, a builder, and the founder of Zero-Energy Plans ( zero-energyplans.com ) in Washington. The numbers Ted put together are pretty straightforward, but the conclusions might be startling to many people, particularly those living in a home with significant energy bills, while also thinking about retirement.
Straightforward stats, startling conclusions
Clifton quotes statistics kept by the U.S. Department of Commerce, which has been keeping track, since 1974, of the price that consumers pay for energy. Although energy prices are very volatile, and are different for various energy sources (oil goes up and down, while trending up over time, while electricity is more stable, while still going up), Clifton found that the average annual increase for overall energy prices including natural gas, heating oil, and propane, has been 6.33%.
According to Ted, "By comparison, the Consumer Price Index, used by the government to calculate increases to your Social Security check, has only risen at an annual rate of just under 1.54% during that same period. It is clear just from looking at these two numbers that if you are trying to use your Social Security check to pay for your energy use, you will be falling behind by about 4.8% per year.
"The average American living in a 2,000-square-foot house is currently paying home energy bills of around $214 per month. In addition to the home energy costs, the average American is also spending a similar amount on gasoline for transportation. At the current rate of energy price inflation (over the last 38 years), this number will double in about twelve years. Yet your Social Security check would only increase by about 18% over the same time period."
Are there any sure bets?
Wait, you say. I'm not relying on Social Security--I have a retirement account invested in stocks and bonds. Fair enough. The stock and bond markets have been great at times, with 10-year annual returns often better than 10%. On the other hand, 10-year annual returns can be more like 0%. It's a volatile investment world. Are there any sure bets?
Ted proposes a simple, radical solution: "If you could use the equity in your home to buy your next 30 years worth of energy at today's prices, you could lock in a rate of around 5% interest on the loan, and receive a return of 6.33% over time. This would allow you to earn a return of 1.33% per year on the bank's money."
In other words, do a major energy upgrade on your current home, or buy a new (or used) energy-efficient home. Depending on the home and your needs, you may even be able to afford a "net-zero energy" home, one that produces as much energy as it consumes.
Too far-fetched? Make targeted investments
If this seems too far-fetched to you, maybe some more targeted investments would make sense. I just had an energy audit that identified several possible energy efficiency upgrades, all of them pretty basic stuff--caulking to reduce air leaks, and adding insulation.
To give an example, my single-family home is lacking insulation in a strategic location--the above-grade portion of the basement walls. Adding spray-foam insulation to the interior of those walls would cost $2,310. An incentive through Efficiency Vermont should reduce that cost to $1,760. Thermal House , which did my audit, predicts that this project will save $25 per month in heating costs, meaning that in a "simple payback" calculation, the upgrade will pay for itself in just under six years. Let's say that I borrow the $1,760 at 5% for five years to pay for the work, bringing my overall cost up to $1,848. It still pays for itself in just over six years. Neither of these calculations looks at likely increases in energy costs, either. I'm also not looking at return on investment (ROI), because that varies a lot based on your time horizon.
Start with an energy audit
I hope you can both invest in your retirement and also have an efficient home. But if you're struggling to keep up with energy bills while also saving for the future, I would at least start with an energy audit.
Photo by Tristan Roberts. A blower door test, being set up here, is a key part of an energy audit, which can help assess your home's efficiency, and identify cost-effective upgrades.
Tristan Roberts is Editorial Director at BuildingGreen, Inc., in Brattleboro, Vermont, which publishes information on green building solutions.